Intermediary Services under GST
An Intermediary is a person who overpass the gap between the business and its customers. In today era, the role of intermediary is very essential in order to capture global business market intermediary is person who develop client relationship in particular geographic region. The Accountability of intermediary is essential to carry out various business functions such as Customer support services, Marketing services, Back end services.
DEFINITION OF INTERMEDIARY IN GST
As per section 2(13) of IGST Act,2017
- “a broker, an agent or any other person, by whatever name called, who arranges or facilitate the supply of goods or services or both or securities between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.”
It is to be noted that broadly there is no specific change in the Definition of Intermediary in GST regime as well as Service tax regime only the change is addition of supply of securities in definition of intermediary in GST.
Elements of Intermediary Services
- An intermediary generally arranges or facilitates a provision of main services between two or more person, but not supplies on his own account.
- In case of Intermediary services, there are two supplies which is as follows:-
a) Supply between the principal and third party.
b) Supply between the agent and the Principal
- The payment to Intermediary is separately identified from the main supply and it is generally in the form of commission
- The Intermediary has not any power to alter the nature and contract of services.
- The services provided by the intermediary on behalf of principal is clearly identifiable and distinguished from the main supply.
- Person Involved in supply of main supply on principal to principal basis to another person can not be considered as an intermediary services.
CBIC Circular(Circular-159/15/2021-GST) on Intermediary Services
1) Minimum of three parties:-An Intermediary is someone who arranges or facilitates main supply between two or more person. It is a natural corollary that the arrangement requires minimum of three parties two of them transacting the main supply of goods and one arranging or facilitating the said main supply(I.e. Ancillary Services) but does not himself provide the main supply.
2) Two Distinct Supplies:- There are two distinct supplies in case of Intermediary services, Main supply is between the two principals, which can be a supply of goods or services or securities. Ancillary supply i.e facilitating or arranging the main supply between the principals.
3) Intermediary Services provider to have the character of an agent, broker or any other similar person:- The Definition itself provides intermediary means a broker, an agent or any other person, by whatever name called ”.In Short intermediary must arrange or facilitates some other supply, which is the main supply, and does not provide the main supply. The role of intermediary is only supportive.
4) Does not Include a person who supplies such goods or services or both or securities on his own account:-Intermediary does not include a person who supplies such goods or services or both or securities on his own account. It implies that in cases wherein the person supplies the main supply, either fully or partly, on principal to principal basis, the said supply cannot be covered under the scope of intermediary.
5) Sub contracting for a service is not an intermediary services:- The supplier of main service may decide to outsource the supply of main service, either fully or partly, to one or more sub –contractors. Such sub-contractors provides the main supply, either fully or part thereof, and does not merely arrange or facilitate the main supply between the principal supplier and his customers, and therefore, clearly is not an intermediary.
Examples of Intermediary Services
1) Mr. X is a manufacture and supplier of Capital Goods. Mr. X appoints Mr. Z for identifying client and helping in finalizing the sale of capital goods and Mr. Z in turns charges commission for said services. Accordingly Mr. Z is facilitating the supply of Capital Goods between Mr. X and their Clients. This is a contract between the Mr. X and Mr. J for providing the ancillary supply of arranging or facilitating the main supply. Therefore Mr. Z is an intermediary and providing ancillary services to Mr. X 2) Neeraj Ltd is a Technology Co. and engage in the business of building operating systems for its customers. Neeraj Ltd. Make agreement with Sangam Ltd. for providing some customized software. Neeraj Ltd. outsource the task for development of this particular model to Nidhi Ltd. In this case, Nidhi ltd providing main supply for development of this particular model in order to supply to Sangam Ltd. Here Nidhi Ltd is not called as an Intermediary.
Advance Ruling and Judgment
Case:- Verizon India Private Limited vs. Commissioner of sales tax (CESTAT Delhi), Service Tax Appeal No. 52799 of 2016, Dated-02/08/2019
Facts of the Case
The assessee entered into master supply agreement with Verizon US a company located outside India, Inter alia engaged in the provision of telecommunication services for which it enters into contracts with its customers located globally for rendering connectivity services for the purpose of data transfer. Since Verizon US, Company located outside India, did not have capacity to provide such services in all geographical areas across the globe, it utilize the services of other V entities including assessee to provide connectivity to its customers. The Assessee clarified that it was not privy to the contracts entered into by Verizon US with its customer in US. It contended that it satisfied the twin requirement under the Export of service Rules 2005 (ESR) for services to be qualify as an Intermediary Services viz, the recipient of services is located outside India and the Payment for the services rendered is received by assessee in convertible foreign exchange. The Assessee filed fifteens applications for claiming the refund of unutilized cenvat credit lying in its account on the ground that it had used various input services in providing output services exported out of India but entire claim rejected by Department on the ground that such services shall not be qualify as export of services.
It made no difference that V India provided telecommunication services not business support services but to qualify the export services both have same criteria.
Payment for services rendered by V India is received in form of Convertible foreign exchange and recipient of such services is located outside India and assessee utilized the services in order to fulfill all its obligations under master supply agreement& it had no difference to fact that provision of such services is outside India
The court is satisfied, therefore in the instant case, denial of refund of cenvat credit to Verizon India in relation to export of telecommunication services to Verizon Us are not sustainable in law. The result is that Verizon India will be able to reinstate the cenvat credit in its books of accounts. The refund claim together with interest due thereon will be processed and issued to V India by department without any further delay.